In the last month, U.S. lawmakers proposed new legislation under the International Maritime Pollution Accountability Act (IMPA) that calls for a national maritime carbon fee to be introduced on all CO2 emissions generated from vessels of 10,000 gross tonnage or more discharging international cargoes at U.S. ports. The proposal calls for these “Market-Based Measures” to come into effect January 2024 when the EU will roll out their own Emissions Trading Scheme (ETS).
The proposed regulation, if ratified, calls for a USD 150.00 per metric ton of CO2 and for the first time, additional levies imposed on NOX, Sulfur Dioxide, and fine particulate matter. The bill goes even one step further by calculating using the life cycle emissions or well to wake (WTW) emissions which takes into account the production, distribution and the combustion of the fuel. This figure is higher and in contrast to the factors applied by IMO and in the EU ETS which is based on tank to wake (TTW) emissions only.
While the contents of the U.S. proposal are vague, under the current constructs the “Operator” would be responsible for submitting their emissions data and paying the assessed fees. Failure to do so will result in the operator being prohibited from operating in U.S. waters and from docking in U.S. ports. In order to be made into law, the proposed bill still must be voted on by both Congress and the Senate before it can go to the President to be signed into law. With the U.S. heading into another election cycle, it is likely these initiatives will take a back burner as the politicians focus on legislation that resonates more with their base. The outcome of the next election will also determine the U.S. policies on GHG for presumably the next four years.
This latest Market-Based Measure proposed by the U.S. comes at a time when the IMO member states continue to debate the broader GHG strategy. The developed nations are insisting not enough is being done while the developing world is digging in their heels. The sentiment is the pricing mechanism will have a negative economic impact on countries more dependent on shipping.
The irony of the latest co-sponsored bill is that the U.S. Senators that put it forward are many of the same politicians who were so critical of the shipping industry when transportation costs soared during the COVID-19 Pandemic. The reality is that these Market-Based Measures will have to be paid by someone and inevitably the costs will be passed through to the consumers in the form of higher prices for goods.
As with many of the Market-Based Measures, it remains vague what will be done with the funds generated (estimated in the $10’s of billions annually) in order to meaningfully address climate change in a positive way. What is very clear is that climate change is a global issue and shipping as a global industry must play a significant role in the transition away from fossil fuels. This can only be done through innovation and determination. The Market-Based Measures designed to incentivize this transition away from fossil fuels are coming in some shape or form. So, it will be up to the industry to share these additional costs in a transparent and equitable way.
By Patrick J. Quincannon
President, CEO
Quincannon Associates